World Bank: Biofuels production key factor behind food commodity demand over past decade

Production of biofuels has been a key factor behind the growth of food commodity demand over the past decade, according to a new report from the World Bank.

The World Bank recently unveiled its Commodity Markets Outlook report, looking at energy and food prices.

The report maintains that global energy prices declined 45% in 2015 and are projected to drop another 16% in 2016.

Even though the Bank's latest commodity outlook is raising its oil price projections from $41 to $43 per barrel, it still sees fossil fuel prices remaining at decade lows into 2017.

The World Bank report also stated: “Given the energy intensive nature of agriculture, lower energy prices will help reduce the cost of producing food commodities.

“They will also ease policy pressures to encourage production of biofuels, which have been a key factor behind the growth of food commodity demand over the past decade. During 2011-16, they are likely to account for up to one-third of the projected 32% price decline of grain commodities and soybeans.”

Energy price changes affect commercial incentives and policy support for biofuels use, which is partly driven by an objective to reduce dependence on imported crude oil, the World Bank said in its report.

The organisation also said that the diversion of some food commodities to the production of biofuels is an important driver of food commodity demand. During the past decade, biofuels constituted the largest source of growth in demand for grains and oilseeds, the World Bank said.

US top producer

Currently, biofuels account for about three percent of global area allocated to grains and oilseeds and contribute the equivalent of 1.5 million barrels per day (1.6%) to global liquid energy consumption. Most biofuel production comes from maize-based ethanol in the US and accounts for 49% of global biofuel production.

Sugar-based ethanol from Brazil accounts for 20% of the total, while edible oil-based biodiesel and ethanol in the European Union account for 15% (Brazil was the world’s dominant biofuel producer until 2000). The remainder is produced by a number of smaller contributors, including Canada, China, and Thailand.

Low oil prices

The World Bank also asserted that low oil prices were hurting renewable fuels.

 Speaking to the Washington Examiner, a World Bank official said: "What our report says is that lower oil prices may reduce policy pressures to divert agricultural commodities to biofuels production," because as the report shows "growth in biofuels production has plateaued”.

 The low price of oil reduces the cost of producing all agricultural commodities, including corn and oil seeds, which are used to produce biofuels, the official told the news outlet. "However, production of biofuels is driven by policies aimed at reducing dependence on imported oil, not profitability. Therefore, the fact that lower energy prices lower the cost of agricultural commodities will not necessarily drive greater biofuels production."